The Shanghai-based company will be delighted to have finally completed this funding exercise, which was mandated as far back as 2000 and was almost launched a year ago before a slowdown in the tech cycle prompted underwriters BOC International and Goldman Sachs to postpone.
This time around, the company found good backing from institutional investors who ordered 12 times the amount of shares available to them, according to people familiar with the transaction. The company offered 406.7 million H shares, or 27.5% of the company, of which 90% were targeted to institutional investors.
There is a 15% greenshoe that could boost the total amount raised to $96 million.
More than 110 institutional investors were said to have participated in the deal, with about 60% of all investors that had one-on-one meetings with the management deciding to place an order. Asian and US investors each bought about 40% of the offering with the remaining 20% going to Europe.
The demand would have allowed for a top-end pricing, but the company and its two bookrunners settled for HK$1.60 - the mid-point of the HK$1.36 to HK$1.85 range û supposedly in order to include a broader group of investors and to leave more room for gains in the secondary market.
ôThis offer doesnÆt have the hype of a metals producer, but many investors who took the time to understand the business saw prospects for good returns at this price level,ö one source said.
The final price values ASMC at a forward price-to-book multiple of 1.35 times, which compares with 0.9 times for ChinaÆs largest chip maker Semiconductor Manufacturing International Corp and 0.8 times for CSMC Technologies.
Both of those companies are expected to be lossmaking this year, however, while ASMC is expected to break even in the first half of 2006 and report a net profit of about Rmb110 million ($13.7 million) for the full year, according to fund managers. It reported a loss of Rmb75.0 million in 2005.
Singapore-listed Chartered Semiconductor Manufacturing and Taiwan-listed United Microelectronics Corp and Vanguard International Semiconductor Corp trade at price-to-book multiples of 1.5-1.7 times. They also have an estimated 2006 return on equity of 8-12% which is a similar range to the 8-9% projected for ASMC.
Retail investors - perhaps deterred by the performance of SMIC and CSMC, which have dropped 57% and 21% since their respective listings in 2004 - gave ASMC a much cooler reception than the recent mainland IPOs which have come out of more ôfashionableö sectors like metals, paper manufacturing and retail.
The subscription ratio stopped at a, by recent standards, a rather modest 13 times, which means ASMC will be the first Hong Kong IPO not to have a clawback since Dongfeng Motor GroupÆs $512 million offering in late November.
The retail portion of the offer needed to be 15 times covered in order to trigger the first clawback level that would have increased the size of the retail tranche to 30% from the initial 10%.
ôThis was a story that retail investors struggled with because they couldnÆt get away from the comparison with SMIC. But that only means that more shares will have been allocated to investors who will hold them beyond the short-term,ö one observer said.
ASMC had tried hard to stress the difference between its dedication to analogue chips and higher bi-polar content-based mixed-signal semiconductors and Semiconductor Manufacturing International CorpÆs focus on digital chips.
The analogue chip-making business, it argued, is less capital intensive, less cyclical and therefore typically more profitable than the part of the industry that has gone digital. Much of the analogue chips go into electronics products such as mobile handsets and camera phones, for which there is rapidly growing demand in China, and the company is also one of two mainland foundries licensed to produce eight-inch chips for the countryÆs national identity cards.
The company is expecting to raise net proceeds of about $70 million, half of which will be used to repay short-term debt. The rest will go towards capital expenditures, with about $25 million set aside to increase the overall capacity of eight-inch wafers to 14,000 per month by the end of 2007 (depending on demand) from the current 12,000 per month.
Dutch electronics manufacturer, Royal Philips Electronics, will remain the single largest shareholder following the IPO, although its stake in the company will drop to 27.7% from 36.9%.